Chapter 6
Decision Making Using Probability
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Decision Making Using Probability - Buisness Management - Lecture Slides, Slides of Business Administration
Business Management is one of the most important subject in Management Sciences but it also has its scope in engineering. Following are the key points discussed in these Lecture Slides : Decision Making Using Probability, Conditional Probability, Tree Diagrams, Optimal Decisions, Outline, Conditional Probability, Utility Companies, Forecast Periods of High Demand, General Formula, Conditional Probability
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Chapter 6
Decision Making Using Probability
Outline
Conditional Probability
Tree Diagrams
Optimal Decisions
Conditional Probability
General formula:
P
A
B
P
A
and
B
P
B
Example
Sales of CD singles at a local outlet:
Male
Female
From this table, we can calculate
P
(Male) =
P
(Male and
P
(Male and 30
P
(Male and 50+)
and
P
(Female) =
P
(Female and
P
(Female and 30
P
(Female and 50+)
Also
P
(Male
P
(Male and 30
P
P
(^) (Female
P
(Male
and
P
Male) =
P
(Male and
P
M ale
P
Male) =
P
(Male and 30
P
M ale
P
Male) = 1
P
Male)
P
Male)
Tree Diagrams
Experiment with multiple outcomes
Represent each experiment by a circle
Branches from it represent outcomes
Each outcome has a probability associated with it
Roll
Roll Roll
SIX
NOT SIX
SIX
NOT SIX NOT SIX
1/
5/
1/
5/
5/
1/ 5/
25/
First
Second Second
5/
1/
SIX
Example
not.A machine produces components. The machine may be OK or
The components may be defective or not.
The components are tested and may be accepted or rejected.
P
(Machine OK)
P
(Component OK
Machine OK)
P
(Component OK
Machine faulty)
P
(Accept component
Component OK)
P
(Accept component
Component defective)
Example ctd
P
(accepted)
P
(defective)
×
×
P
(^) (defective and accepted)
P
(accepted
defective)
P
(defective
accepted)
P
(machine OK and accepted)
P
(machine OK
accepted)
P
(machine OK and rejected)
P
(rejected)
P
(^) (accepted) = 0
P
(machine OK
rejected)
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Expected Monetary Value (EMV)
For a single event
EM V
P
Event
×
Monetary value of Event
possible outcomes isThe expected monetary value of a project with several
EM V
∑
P
(Event)
×
Monetary value of Event
where the sum is over all possible events.
Decision Trees
Likely profits:0.2, 0.35 and 0.45 respectively High, medium or low chance of success with probabilities
High
Medium
Low
Direct
Internet
Licence
What should the company do?
Plan
Internet Direct Licence
High Low Medium High
Low Medium
High Medium
Low
24.7 28
20
0.45 0.
46 −25 55 100
15 25 20
20 20